Vanguard's Bogle: Investors Shouldn't Constantly Shift Strategies

Tuesday, 21 May 2013 02:10 PM

By Glenn J. Kalinoski

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Constantly shifting an investment strategy is the worst approach an investor can take, according to John C. "Jack" Bogle, senior chairman and founder of The Vanguard Group.

"I don't think it's a good idea for investors to think about jumping on the bandwagon or jumping off the bandwagon," he told CNBC. "If you look at the realities of investing, motion is the worst thing you could do. The more you trade, the less you make. The academic studies and Warren Buffett are going to tell you the same thing."

He said every year investors trade about $33 trillion worth of stocks in a market worth about $17 trillion.

Editor's Note: Billionaires Dump Stocks. Prepare for the Unthinkable.

"All we're doing is trading with one another," he said. "We have this huge gambling market."

A comparison of today's stock market with the one in 1999 was characterized as "simply absurd," with Bogle noting that the market's current valuation was around 17 times earnings, while the earlier investment environment was 36 to 40 times earnings.

Bogle's recommended asset allocation includes stocks as well as a bond position.

"The best rule is to have a certain idea of asset allocation and more bonds as you get older, and once you establish your … stock-bond asset allocation, hang on to it," he said.

"Enjoy the year because you probably have 60 percent, 65 percent in stocks and even with bonds going nowhere this year, they're having a pretty nice time. So, enjoy it. And don't think, 'Has it gone too far? Far enough?' Nobody knows."

The Standard & Poor's 500 Index has skyrocketed 146 percent from its 12-year low in 2009, propelled by better-than-estimated corporate earnings and three rounds of bond purchases from the Federal Reserve, according to Bloomberg News. Of the equities that have released earnings this season, 71 percent have beaten analysts’ estimates and 52 percent have missed analysts’ sales forecasts.

"I would hope investors, particularly retired and older investors, realize that the job is to develop an income stream," he said.

Editor's Note: Billionaires Dump Stocks. Prepare for the Unthinkable.

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